October 28, 2013 Newsletter

Dear Friends,

Tangents:

Isn’t this beautiful fall weather for those of us living on the left coast?  Enjoy it while it lasts – rain is coming later in the week.

Today is the anniversary of the dedication of the Statue of Liberty  –  a gift from the people of France; President Grover Cleveland dedicated the statue in New York Harbor on October, 28^th, 1886.

I think I’ve now seen the biggest TV screen in existence at  recently renovated Tappo Restobar on Richards Street in Vancouver.  Now that football season has officially arrived, they are opening on Sundays for brunch – Mediterranean inspired menu – best minestrone soup!

In life, as in a football game, the principal to follow is: Hit the line hard.  –Theodore Roosevelt.

Photos of the day

A woman and her daughter struggle against strong winds and rain in central Brussels. According to local media, the winds could reach speeds of over 62 miles per hour. Francois Lenoir/Reuters

People stop on a bridge over the river Garry to view the autumn scene near Killiecrankie, Scotland. Russell Cheyne/Reuters

Market Closes for October 28^th, 2013

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Aubrey Pringle

Oct. 28 (Bloomberg) — Canadian stocks fell from a two-year high, as energy and industrial shares dropped before the U.S. Federal Reserve meets to consider extending monetary stimulus.

Canadian Natural Resources Ltd. and Advantage Oil & Gas Ltd. dropped at least 1.7 percent as natural gas prices slid.

Canadian Pacific Railway Ltd. fell 1.3 percent to pace losses among industrial shares after Pershing Capital Management LP cut its stake in the company by four percentage points. Taseko Mines Ltd. added at least 8.3 percent as miners advanced.

The Standard & Poor’s/TSX Composite Index fell 27.58 points, or 0.2 percent, to 13,371.84 at 4 p.m. in Toronto. The gauge rallied 2 percent last week to the highest since July 2011. It’s risen 4.6 percent in October, poised for its best month in two years. Trading volume was 9 percent below the 30- day average at this time of day.

“The market is somewhat directionless,” Brian Huen, the Toronto-based managing partner at Red Sky Capital Management Ltd., said by phone. His firm oversees C$225 million ($215 million). “We have lots of earnings coming out later this week and the FOMC meeting, and that’s what going to start driving investor sentiment. Until we get more news flow, I think we’re going to be range-bound.”

The benchmark index swung between a gain of 0.1 percent and a drop of 0.2 percent today, with seven of 10 main groups retreating. The gauge had advanced eight of the nine sessions prior to today.

The Federal Open Market Committee starts a two-day meeting tomorrow to consider when to start trimming $85 billion of bond purchases that have helped bolster global equities. A report today showed factory production in the U.S. rose less than forecast last month, reviving prospects for an extension of economic stimulus by the Fed.

Some 50 companies in the S&P/TSX will report earnings in the next four days, including Barrick Gold Corp., Suncor Energy Inc. and Bombardier Inc.

Canadian consumer confidence fell for a fourth straight week, the Bloomberg Nanos Canadian Confidence Index showed today. The weekly measure of the economic mood of Canadians dropped to 57.7 in the seven days through Oct. 25, from 58.0 the previous week.

Consumer staples stocks retreated 0.6 percent, dragged lower by Maple Leaf Foods Inc., which fell 3.2 percent to C$15.47.

Industrial shares halted a six-day rally, sliding 0.8 percent. Canadian Pacific fell from an all-time high, retreating 1.3 percent to C$148.17. Bill Ackman’s Pershing Square completed a previously announced sale of the railway operator’s shares, reducing its to 9.8 percent from 13.8 percent in July. Canadian National Railway Co. dropped 1 percent to C$114.03.

Bombardier Inc., Canada’s largest plane maker, dropped 1.9 percent to C$5.27 after a UBS analyst reported that the new CSeries aircraft has logged fewer test flight hours than the bank estimates are needed before the planes can be shipped.

Energy stocks fell 0.5 percent, led lower by gas producers.

Canadian Natural Resources slid 1.9 percent to C$32.68 and Advantage Oil & Gas fell 1.7 percent to C$4.15. Natural gas prices plummeted 3.7 percent.

Atlantic Power Corp. plunged 6.2 percent to C$5 for its biggest slide since June. Bank of Nova Scotia cut its rating on the power generation company’s stock to underperform.

Raw materials producers gained 0.2 percent, reversing an earlier drop of as much as 0.7 percent for the best performance in the benchmark index. Gold advanced for the third straight session on speculation the Fed will delay tapering.

Detour Gold rose 3.8 percent to C$9.12 and Eldorado Gold Corp. gained 3 percent to C$7.49. Taseko Mines jumped 8.3 percent to C$2.73.

Fairfax Financial Holdings Ltd., which has an investment portfolio worth $24.1 billion, jumped 1.2 percent to C$473.58.

The Toronto-based insurer and financial services company climbed to the highest level since 1999 after investments in Irish banking and Canadian cattle feed surged, more than offsetting any potential loss from a $4.7 billion bid for smartphone maker BlackBerry Ltd.

USA

By Nick Taborek and Alexis Xydias

Oct. 28 (Bloomberg) — U.S. stocks rose, leaving the Standard & Poor’s 500 Index poised for the best annual gain since 2003, as weaker-than-forecast economic data fueled bets the Federal Reserve will maintain stimulus at its meeting.

Burger King Worldwide Inc. rose 5.8 percent after third- quarter sales topped estimates. Dendreon Corp. jumped 11 percent as people familiar with the matter said the drugmaker is seeking a buyer. Merck & Co. slid 2.6 percent after reporting revenue that fell short of estimates. Apple Inc. dropped 2.2 percent after the market close as the maker of iPhones and iPads released results.

The S&P 500 rose 0.1 percent to 1,762.11 at 4 p.m. in New York. The gauge has rallied 23.6 percent this year, which would be the best annual gain since a 26.4 percent surge in 2003. The Dow Jones Industrial Average fell 1.35 points, or less than 0.1 percent, to 15,568.93. About 5.9 billion shares changed hands on U.S. exchanges, in line with the three-month average.

“The most bullish thing a market can do is go up, and that’s what it’s been doing,” Bruce Bittles, chief investment strategist at RW Baird & Co., said by phone from Sarasota, Florida. His firm oversees $100 billion. “With Janet Yellen coming on stream and the latest jobs data that was a disappointment, that suggests that the Fed will continue to ease and print money until at least March and probably beyond.”

The S&P 500 rallied 0.9 percent last week for its third straight weekly gain, as signs of slower economic recovery fueled bets the Fed will wait until March before scaling back bond purchases. The gauge has jumped 4.8 percent this month as lawmakers agreed to raise the government’s borrowing limit.

Fed policy makers meet Tuesday and Wednesday to consider whether economic growth is strong enough to start trimming $85 billion of bond purchases. This month’s 16-day government shutdown took at least $24 billion out of the economy and will spur central-bank policy makers to wait until March to scale back the stimulus, a Bloomberg survey showed this month.

Data today added to concern that growth slowed in the weeks before the shutdown. Factory output rose 0.1 percent in September, slower than the 0.3 percent forecast by economists in a Bloomberg survey. Another report showed fewer Americans than forecast signed contracts to buy previously owned homes in September, the fourth straight month of declines. A report last week showed hiring grew at a slower-than-estimated pace.

“Investors are going to be overly focused on this Fed meeting,” Scott Wren, senior equity strategist at St. Louis, Missouri-based Wells Fargo Advisors LLC., which oversees about $1.3 trillion, said by phone. “I suspect that when the statement is released there’s going to be very little change to it.”

Better-than-expected earnings and the Fed stimulus have driven the S&P 500 up more than 160 percent since March 2009.

The rally has lifted equity valuations, with the index trading at 16.7 times reported earnings.

Profits have beaten the average analyst estimate at 76 percent of the 249 S&P 500 companies that have released results so far in the latest reporting season, data compiled by Bloomberg show.

The Chicago Board Options Exchange Volatility Index, the gauge known as VIX that measures options traders’ estimate of future price swings in S&P 500, has slid 20 percent so far this month. The gauge climbed 1.7 percent to 13.31 today.

Five out of 10 main industries in the S&P 500 advanced, as consumer-staples companies rose 1.2 percent to pace gains.

Burger King rose 5.8 percent to $20.90. The fast food chain reported third-quarter revenue beat analyst estimates as overseas gains in comparable-store sales offset a decline in the U.S. and Canada.

Hershey Co. gained 3.1 percent to $100.14, giving the chocolate maker’s stock a record close three days before Halloween.

J.C. Penney Co. rallied 8.8 percent to $7.39 for the biggest gain in S&P 500. Chief Executive Officer Myron Ullman said at a conference he still expects positive comparable sales in the third quarter, Reuters reported.

Bristol-Myers Squibb Co. rallied 6.7 percent to $52.02, the highest since December 2001. The company’s experimental rheumatoid arthritis drug reduced symptoms of the disease and was about as effective as a current standard treatment sold by AbbVie Inc., a study found.

Dendreon surged 11 percent to $2.81. The maker of Provenge prostate-cancer treatment is working with JPMorgan Chase & Co. to find suitors after sales of the prostate-cancer treatment failed to meet expectations, said one of the people, who asked not to be named as the process is private.

The company, whose market value once topped $7 billion, has generated about $2 billion in losses over the past decade. That market capitalization now hovers at about $400 million.

Apple fell 2.2 percent to $518.46 as of 4:50 p.m. in New York. After the close of regular trading, the world’s most- valuable company predicted lighter-than-estimated gross margins.

Its sales forecast for the crucial holiday quarter topped analysts’ projections. Profit for the just-ended quarter fell 8.6 percent to $7.51 billion, or $8.26 a share, above the $7.92 projected by analysts on average and the third-consecutive period of declines.

Merck dropped 2.6 percent to $45.35 in regular trading for the biggest drop in the Dow. Third-quarter earnings, excluding one-time items, were 92 cents a share, beating by 5 cents the average of analyst estimate compiled by Bloomberg. Sales fell 4 percent to $11 billion, hurt by patent expirations and foreign currency exchange, the second-biggest U.S. drugmaker said. The revenue fell short of the $11.1 billion projected by analysts.

Edwards Lifesciences Corp. slid 5 percent to $73.24 after forecasting fourth-quarter profit below analysts’ estimates. The maker of replacement heart valves is facing increased competition from Boston Scientific Corp. which said today it received approval for its Lotus heart valve, a second-generation device, in Europe. Medtronic Inc. plans to present data on its CoreValve at a medical meeting tomorrow.

The smallest stocks are rallying almost twice as fast as bigger companies in the U.S., a bullish economic signal from businesses whose profits are most dependent on domestic demand.

Shares of companies from Rite Aid Corp. to Teledyne Technologies Inc. in the Russell 2000 Index have advanced 32 percent in 2013, compared with 19 percent for the Dow. The spread is the widest for any year since 2003, according to data compiled by Bloomberg. Three of the last four times small-caps outperformed by this much, the economy grew faster the next year and stocks stayed in a bull market for another year or more, based on data from the past 34 years.

Gains in smaller companies that are more dependent on U.S. growth show investors are betting the world’s largest economy will pick up even after jobs growth slowed and the government shutdown weighed on gross domestic product. Smaller firms are surpassing analyst earnings estimates by more than Dow companies and are forecast to grow faster next year.

“If you’re focused on the U.S., and the U.S. is performing very well, then of course your revenues and earnings are going to be much better,” Kully Samra of Charles Schwab Corp., which has $2.15 trillion of assets globally, said by phone Oct. 24 from London. “Other regions are at different stages of dealing with structural issues, and the U.S. has already dealt with them.”

Have a wonderful evening everyone.

Be magnificent!

We should never try to follow another’s path for that is his way, not yours.

When that path is found, you have nothing to do but fold your arms

and the tide will carry you to freedom.

Therefore when you find it, never swerve from it.

Your way is the best for you,

but that is no sign it is the best for another.

Swami Vivekananda, 1863-1902

As ever,

Carolann

We cannot do great deeds unless we are willing

to do the small things that make up the sum

of greatness.

-Theodore Roosevelt, 1858-1919

Carolann Steinhoff, B.Sc., CFP®, CIM, FCSI

Senior Vice-President &

Senior Investment Advisor

Queensbury Securities Inc.,

St. Andrew’s Square

Suite 340A, 730 View St.,

Victoria, B.C. V8W 3Y7